The price of a business is ultimately what someone will pay for it… it is market-driven, similar to the Real Estate Market. The value of a business is based on numerous variables including what it owns and what it earns.

A business has tangible and intangible assets. The tangible assets are the furniture, fixtures, equipment, inventory, and real estate. The intangible assets can include the trade name, contracts, leases, client lists, licenses, recipes, and patents.

A business provides a certain financial benefit to the owner. The benefit usually comes in the form of business profits and a salary to the owner. It can also provide the owner with fringe benefits such as health insurance, a company car, or a retirement plan.

Owner-operated Landscape businesses with annual sales of $1M/year or less generally sell the value of assets, plus 1-2x the profit/earnings. If the earnings are stable and growing along with a high score on the quality of the business characteristics, the value is on the higher end. Conversely, if the profit/earnings are variable or declining, the value is on the lower end.

Landscape businesses with a NET profit exceeding $500K/year may sell for straight earnings multiples of 3x, depending on the quality of the revenue history & futures, management, assets, processes, etc. Landscape businesses with a NET profit exceeding $1M/year may sell for straight earnings multiples of 4x or greater and often have specific industry criteria, which may be applied to determine value. At this level, Buyers may be paying for market share, rights of patents and processes, or the benefits of strategic and administrative consolidation.

Most industries have one or more rules of thumb. However, they can vary widely and, in most cases, do not give an accurate value of a business. Since each landscape-related business is unique, a particular rule of thumb can be off by as much as 50% or more. Landscape Depot Investments will be able to decide what is the most relevant information about a business and then make an informed decision about its value.